F1 Budget cap confirmed at £40m

Grim.

from crash.net

The FIA has confirmed it will introduce cost-capping to Formula 1 from 2010, although the budget has been raised from the originally proposed £30million to £40million.

In a move prompted by the ongoing global financial crisis, the FIA revealed they considered further restrictions on technical rules, but favoured cost-capping in order to prevent a 'spending race' and allow 'unfettered technical competition to flourish'

Cost-capping will relate to almost everything in Formula 1, although it does not include marketing, with the FIA keen for teams to promote the sport through various activities away from the race circuit.

It will also encapsulate engine costs in an attempt to attract more engine manufacturers to the sport, although this will only be apparent for 2010. Furthermore, manufacturers are being allowed to honour existing supply arrangement, provided there is no element of subsidy that could have a cartel-like affect on the engine market.

In addition, young driver programmes will also be exempt in a bid to lure a younger generation to the sport.

Teams will be encouraged to sign up to the budget capping in order to receive technical freedoms, including movable front and rear wings and engines with an unlimited rev limit. The teams will also be allowed unlimited out-of-season track testing with no restrictions on the scale and speed of wind tunnel testing.

With this in mind, the FIA is confident all teams will sign up to the scheme and avoid the prospect of a 'two-tier championship system'

As well as cut down on costs, it also hoped the move will attract more teams to the sport and prevent others from following Honda in quitting. Currently down to ten teams and twenty cars, a maximum of three more teams could be poised to join the grid in 2010.

The full FIA transcript is as follows:

Q:
How did the FIA arrive at the £40m figure?

FIA:
We arrived at the figure by analysing both revenues and costs in Formula One. We know what the FOM (Formula One Management) revenue is likely to be in the future, and we have some understanding of realistic sponsorship revenues during the recession. Taken together, it's possible to project total external revenues for all finishing positions in the Championship. At £40m we believe that 70 per cent of the grid can generate a profit. This transforms the business case for owning a Formula One team, for both manufacturers and private investors. The desired net result is to have a very healthy commercial environment for present and new owners.

We also had a good look at costs, and believe that £40m in combination with greater technical freedom will allow engineers to create Formula One cars even more interesting and exciting than today's cars.

Q:
Will the £40m cap for 2010 be changed for future years?

As set out in the Regulations, the cap for future years will be decided by the FIA. In setting future years' limits, the FIA will have regard to the progress of the project and the feedback from all stakeholders to the sport.

Q:
How does the FIA intend to police the cost cap?

FIA:
Throughout the construction of the Regulations we have worked with expert forensic accountants.

The Regulations allow for the establishment of a Costs Commission to monitor and assist teams in complying with the Regulations. The Costs Commission will appoint auditors, and other financial experts as required, in order to do this.

A key factor is that all cost capped teams are businesses engaged in exactly the same activities and this enables consistent interpretation of the principles of the regulations. It is difficult to hide engineering activity or to falsify accounts consistently, given the traceability of transactions in today's world and the access and inspection powers which the Costs Commission will have. The penalties for defrauding the FIA with regard to any willful transgression of any Regulation or any subversion of an investigation are well established.

Q:
Is a Costs Commission really needed?

FIA:
The emphasis is on teams to demonstrate compliance, and to pro-actively seek clarification and interpretation of the Regulations. As the Cost Cap Regulations are new the FIA has decided to provide an appropriate resource, staffed with a small number of financial and technical experts, to deal with such issues, and to monitor compliance, such that the Regulations are effective.

Q:
Who pays for the Costs Commission, auditors and other experts, and doesn't this just add costs, rather than removing them?

FIA:
The cost capped teams will each pay an equal contribution to cover these costs. The costs involved will represent a tiny fraction of the costs saved in Formula One.

Q:
What is the penalty if a team exceeds the cost cap?

FIA:
This depends on the case. The International Sporting Code covers transgressions in the same manner as for the technical or sporting regulations. There are no 'fixed penalties'. The Cost Commission will judge the degree of misdemeanor and advise the FIA , who will determine any penalty.

Q:
What measures are there to prevent teams spending money this year on a car that will compete under cost cap in 2010?

The teams must demonstrate that they have adhered to the spirit of the regulations and spend no more than 50% of the value of the 2010 cap on the development of the 2010 car (in 2009). Furthermore, there are limits on the value of stock of car parts which can be carried into 2010.

Q:
How will you stop manufacturer backed teams from running hidden F1-related projects in their parent companies?

FIA:
The question is actually asking 'how will we stop manufacturer teams from cheating'. The principles of determining a fair market value for all activities which are undertaken for the benefit of a team (whether a manufacturer or not) are clearly set out in the Regulations.

No team would wish to be exposed as cheating, so we expect a healthy amount of self-policing. However, the rules are clear on this point, such activities must be declared and appropriately valued. Bear in mind the access that the costs commission and auditors have and their ability to compare reported costs across all cost capped teams.

Q:
Will teams be allowed to buy parts from other teams/manufacturers?

FIA:
Yes, according to the FIA regulations, but one should bear in mind that contractual arrangements with the Commercial Rights Holder will place restrictions on such activities. Inter-team transactions are covered by the regulations.

Q:
How many teams do you expect to take up the budget option?

FIA:
All those who wish to transform the commercial basis of participation for their owners and investors. The FIA believes that cost capping will prove attractive, and it hopes that over time all teams will join. So far, interest has been extraordinarily high from both existing teams and potential new entrants.

Q:
If a team decides not to become cost capped now, can it do so at a later date?

FIA:
Yes, a team will be able to opt to become cost capped in advance of each year of its participation in the Championship.

Q:
Are you worried that F1 will effectively become a two-tier championship?

FIA:
There is one set of Technical Regulations and as always there are choices for all teams as to how they decide to attack the Championships.

meditraitor

I seen this on Breaking news earlier, its a step in the right direction IMO

26 Cars and capping spend will create better competition and put the driver back to the fore. All in all I think it is a very positive move..........

Frank Bullitt

This is far from over i think,nearly every team is against this 2 tear idea,ill side with them on that

Slutmonkey57b

The outcome is going to be one of two things:

The cost-capped teams won't have the budget to exploit the technical freedom properly, or won't have reliable cars.
or
The cost-capped teams will be able to reap disproportionate rewards from the relaxing of specific rules (like engine regs) which will mean that no matter how much money is spent, the big teams won't be able to compete.

Either way you've got a two-tier system.

amacachi

The no-rev-limiter rule is somewhat odd, surely that makes a massive difference, I thought the engines were capable of well over 20,000RPM.

Frank Bullitt

The rule about only 2 wheels being allowed to drive the car is scrapped as well,so there could be 4 wheel drive cars with 20,000 revs against 2 wheeled drive cars with 18,000,i thought these rules were to even up the field?doesn't look even to me.

sheehy898

There is rumors that Ferrari may pull-out of F1 over this budget cap,I have to say ,i would be extremely disappointed if this came true.

Ghost Train

wonder will there be a lot of job losses in F1 due to this

not sure if its a good or bad thing

might take the edge off the high level of competition you get in F1, will be good if it brings costs down without effecting the racing too much

amacachi

sheehy898 wrote: »

There is rumors that Ferrari may pull-out of F1 over this budget cap,I have to say ,i would be extremely disappointed if this came true.

Rumours that Ferrari may pull out due to rule changes? That's never happened before surely? :P

rua1972

Maybe Bernie will give them even more money to stay in F1 :pac:
on topic I don't hope it will be a two tier championship. We have that now with the KERS. The rules should apply the same for everyone, even if teams read them in a different way.

podmu80

F1 without ferrari is like the pussycat dolls without nicole.

EvilMonkey

amacachi wrote: »

Rumours that Ferrari may pull out due to rule changes? That's never happened before surely? :P

Ferrari never said they were considering pulling out, this is all coming form the fia, they did say that it was in breach of the veto that Ferrari were given when the were the first to sign up the last time. This is just the fia putting pressure on Ferrari who obviously aren't happy with the current plans.

rua1972 wrote: »

Maybe Bernie will give them even more money to stay in F1 :pac:
on topic I don't hope it will be a two tier championship. We have that now with the KERS. The rules should apply the same for everyone, even if teams read them in a different way.

Their already is a two tier championship the rich teams and the rest! I hope they dont end up with 2 sets of regulations though.

Slutmonkey57b

podmu80 wrote: »

F1 without ferrari is like the pussycat dolls without nicole.

The Pussycat Dolls originally featured Carmen Electra. They're already a 3rd division outfit compared to what they were.